SEC filing by Disney warns of legal woes

Battle over rights to Pooh characters could cost hundreds of millions

May 26, 2002|By Richard Verrier | Richard Verrier,SPECIAL TO THE SUN

Walt Disney Co. revealed in a government corporate filing that a court fight over the merchandising rights to Winnie the Pooh characters could, in the worst-case scenario, cost the company several hundred million dollars and affect the value of future licensing rights for the lucrative Pooh characters.

The disclosure was made in a quarterly filing with the Securities and Exchange Commission. It marks the first time Disney has notified shareholders of the potential impact of the 11-year-old legal battled with Stephen Slesinger Inc. That family-owned company acquired the merchandising rights to the Hundred Acre Wood characters from author A.A. Milne in 1930.

"If each of the plaintiff's claims were to be confirmed in a final judgment, damages could total as much as several hundred million dollars and adversely impact the value to the company of any future exploitation of the licensed rights" for Pooh merchandise, according to the filing. "However, given the number of outstanding issues and the uncertainty of their ultimate disposition, management is unable to predict the magnitude of any potential determination of the plaintiff's claims."

Slesinger's heirs claim the Burbank, Calif., company has cheated them out of $200 million in royalties since 1983 from Pooh-related videos, DVDs, computer software and popular Pooh attractions at theme parks. Disney maintains that it has fulfilled its royalty obligations under a 1983 contract.

The lawsuit is scheduled to go to trial in February.

"As this case has gotten closer to trial it has gotten more and more attention, and we thought it was appropriate for us to let our shareholders know," said Disney spokeswoman Michelle Bergman.

Bonnie Eskenazi, one of the lawyers representing Slesinger, said the filing was significant because "Disney has adamantly denied that there was even a possibility of terminating the future rights to use of Pooh."

But Disney's lead attorney, Daniel Petrocelli, said the filing does not change Disney's view that "whatever the outcome of the lawsuit, the Slesinger Co. is not in a position to reclaim and exploit any Winnie the Pooh rights on its own."

Pooh and his friends are among the most lucrative of Disney characters and a key contributor to the company's struggling consumer products unit. "Clearly Pooh has been a significant franchise, and anything that would jeopardize that going forward would have a long-term impact on their earnings," said Tom Wolzien, analyst with Sanford C. Bernstein.

The case has garnered worldwide attention and been a public relations embarrassment for Disney, which was fined $90,000 last summer by a superior court judge for destroying 40 boxes of documents, including one labeled "Winnie the Pooh - legal problems," according to court records.